Difference between provision and reserve.
The major differences between provision and reserve are as follows −
Means to provide for a future excepted loss/liability.
Charge against profits.
Provides for anticipated losses / excepted liabilities.
No need of profits for provisions creation.
As per GAAP.
Dividends are not paid.
Provisions are used for which they created.
Shows both sides and balance sheet.
Meets specific loss or an accruing liability.
Made by debiting P&L account
Mandatory to create provisions.
Can’t be used to invest outside business.
Retain profit for future use
Charge against appropriation of profits.
Increase capital employed.
For creation of reserves, profit should present.
Dividends can be paid.
Can be used otherwise.
Shows on liability side in balance sheet.
Strengthens financial position.
Made by debiting P&L of appropriate account.
Not mandatory to create reserves.
Used to invest outside business.
Published on 25-Jul-2020 10:14:57